[W] St. Francis De Sales Federal Credit Union v. Sun Insurance Company of New York

2002 Me. 127 (2002) | Cited 15 times | Supreme Judicial Court of Maine | August 2, 2002

Reporter of Decisions

Argued: January 10, 2002

¶1 Sun Insurance Company of New York1 (n/k/a Chubb Indemnity Insurance Company) appeals from the denial of its motion for a judgment as a matter of law following the entry in the Superior Court (Kennebec County, Marden, J.) of judgments against it in favor of the plaintiffs, St. Francis De Sales Federal Credit Union, Winslow Community Federal Credit Union, Taconnet Federal Credit Union, Notre Dame Federal Credit Union, and Keyes Fibre Federal Credit Union (collectively, the "Credit Unions"). The judgments are for compensatory damages on the complaint brought by the Credit Unions for fraud and misrepresentation. Sun contends that the Credit Unions failed to establish the elements of fraud by clear and convincing evidence, and that the court erred in refusing to admit evidence of the existence of other insurance covering the losses suffered by the Credit Unions. The Credit Unions also appeal from the court's grant of judgments as a matter of law in favor of Sun on their claims for punitive damages arising out of the fraud and misrepresentation. The Credit Unions contend that the court erred in concluding that they failed to prove that the conduct of Sun was sufficiently egregious to warrant the imposition of punitive damages. We discern no error and affirm the judgments of the Superior Court.

¶2 The evidence admitted at trial established the following facts: As part of their daily business operations, each Credit Union collected restrictively endorsed checks. The checks were transported by the Maine Armored Car & Courier Service, Inc., to Lewiston for processing by the Financial Institution Service Corporation.

¶3 Pursuant to an agreement with Maine Armored Car, at the end of each day the Credit Unions deposited the checks into a locked metal box that was bolted to an exterior wall of the St. Francis De Sales Federal Credit Union building. The lock box was owned, installed, operated, and maintained by Maine Armored Car. Maine Armored Car picked up the checks every business day and delivered them to Lewiston for processing.

¶4 As part of the agreement, Maine Armored Car was required to be insured against the loss of the Credit Unions' property. To meet this requirement, Maine Armored Car purchased an armored-car-transportation-insurance policy, issued by Sun. The policy contained the following provision:

9. Where the Assured [Maine Armored Car] makes contracts providing that this Assured will call at the premises of a customer and open a safe/ATM thereon, either alone or in cooperation with the customer or his representative, it is understood and agreed that any liability of this Assured for any loss of Property which may occur under any such contract shall be covered by the Policy of Insurance but only from the moment that this Assured actually enters the premises and/or ATM location of the customer for the purpose of opening any such safe/ATM.

It is further understood and agreed that the liability of this Assured for Property awaiting transportation by the Assured or otherwise and contained in a safe or safes or ATMS located on the premises and/or ATM location of a customer or customers for which safe or safes or ATMS this Assured has agreed to carry a master key, dial rim lock key, guard key or combination shall be insured hereunder but only in the event such loss is caused by a person or persons gaining unlawful access to such safe or safes or ATMS through use of a master key, dial rim lock key, guard key or combination and for an amount not exceeding $50,000 from any one safe/ATM.

¶5 Annually, at Maine Armored Car's request, Sun issued to each Credit Union a certificate of insurance to verify that Sun had issued a policy of insurance to Maine Armored Car for loss of property of its customers from any cause.

¶6 The first paragraph in each of the certificates of insurance read, in its entirety:

This certificate is furnished simply as a matter of convenience to its holder(s) and gives information as to the issuance of the below mentioned policy, and sets forth certain features of the coverage as stated in said policy as it stands as of the date of issue hereof. This Certificate confers no rights on the holder(s). Said Policy, which contains the full provisions of the contract and insurance granted thereby is subject to endorsement, alteration, transfer, assignment and cancellation without notice to the holder(s) of this Certificate.

¶7 The certificates then described the coverage in the underlying policy as "[c]overing the liability assumed by [Maine Armored Car] for loss or damage, from any cause whatsoever, to property of customers, consisting of . . . Checks, Drafts, Notes . . . and all other Commercial Papers, and other Documents and Papers of value." The certificates then listed a number of exclusions not relevant to this case. Certificates were issued covering the period of August 1, 1991, through August 1, 1992.

¶8 On May 22, 1992, an unknown thief broke into the lock box located at St. Francis De Sales Federal Credit Union and stole the checks. Maine Armored Car submitted a claim to Sun in connection with the theft. On the basis of the provision in the insurance policy cited above and the circumstances surrounding the theft from the lock box, Sun denied coverage for the loss.

¶9 The Credit Unions sued Maine Armored Car over the lost checks and obtained a judgment establishing Maine Armored Car's liability for the loss of their property. See St. Francis De Sales Federal Credit Union v. Maine Armored Car & Maine Armored Car Service, Inc., CV-93-596 (Me. Super. Ct., Kennebec Cty., Sept. 11, 1996) (holding Maine Armored Car liable). St. Francis De Sales was awarded $30,351.50 in compensatory damages; Winslow $27,068.24; Taconnet $418.43; Notre Dame $1378; and, Keyes Fibre $1091.68. Id.

¶10 The Credit Unions have been completely unsuccessful in executing their judgments against Maine Armored Car, and have demanded that Sun pay the proceeds of the insurance policy described in the certificates of insurance issued to them. Sun, however, denied coverage.

¶11 The Credit Unions then brought this action, alleging that they should be allowed to reach and apply the proceeds of the policy issued to Maine Armored Car; that the fraudulent representations made by Sun in the certificates of insurance damaged the Credit Unions; and, that the Credit Unions should be awarded punitive damages in connection with the fraud claims. The Superior Court (Atwood, J.) granted summary judgment in favor of Sun and against the Credit Unions on the "reach and apply" counts,2 but denied the motion with respect to the fraud claims. A jury trial was held on the fraud claims.

¶12 Pursuant to the collateral source doctrine the Credit Unions moved in limine to bar the admission of evidence of their own insurance against the loss. Sun responded that the evidence was admissible for the purpose of establishing mitigating factors on the issue of punitive damages. The court conditionally excluded the evidence, reserving the right to admit the evidence if an appropriate issue was generated.

¶13 While cross examining the Credit Unions' first witness, the president of St. Francis De Sales, Sun made an offer of proof establishing that each Credit Union was fully insured against the loss suffered as a result of the theft from the lock box and that each Credit Union informed its insurer in a sworn statement in a proof of loss form that no other insurance covered the loss. The trial court determined that the sworn statements in the proof of loss forms were admissible "on the issue of general credibility of the reliance upon the certificate[s] of insurance." The trial court stated that it was going to allow the bare inconsistent statements on the proof of loss forms to be admitted, but that everything else on the forms had to be redacted, including the fact that the form was a proof of loss form. Sun's attorney still pressed for the admission of the entire documents, but did not base his argument on the issue of reliance. Rather, counsel argued that the documents were admissible to establish mitigating factors on the issue of punitive damages. Once the forms were heavily redacted, Sun cross examined the president of St. Francis De Sales with the sworn statements that "no other insurance existed."

¶14 The jury returned a verdict in favor of the Credit Unions and awarded each of them as compensatory damages the same amount each had been awarded in their case against Maine Armored Car. The jury also awarded $25,000 to each Credit Union as punitive damages.

¶15 Sun moved for judgments as a matter of law at the appropriate times throughout the proceedings. The trial court deferred ruling on the motions until after the jury returned a verdict. The court denied Sun's motions for judgment as matter of law on the claims for fraud and misrepresentation, but entered judgments for Sun on the punitive damages claims. These appeals followed.

I. MOTION IN LIMINE

¶16 Sun first contends that it should have been allowed to demonstrate that the Credit Unions were insured and had been compensated by insurance for the losses claimed in this action. It argues that the proffered evidence established "mitigating factors that the jury should have been allowed to consider in evaluating its assessment of punitive damages." Sun also asserts that the evidence was admissible on the issue of whether the Credit Unions' reliance on the misrepresentations in the certificates of insurance was reasonable and on the issue of causation.

¶17 We review a trial court's decision to exclude evidence for clear error or an abuse of discretion. State v. Tomah, 1999 ME 109, ¶ 7, 736 A.2d 1047, 1050. The collateral source doctrine provides that, "if a plaintiff is compensated in whole or in part for his damages by some source independent of the tortfeasor, he is still permitted to have a full recovery against [the tortfeasor]." Werner v. Lane, 393 A.2d 1329, 1335 (Me. 1978). "The premise underlying this rule is that either the injured party or the tortfeasor will receive a windfall if part of a loss is paid by an independent source, and, as between the injured party and the tortfeasor, the injured party should reap the benefit of the windfall." Potvin v. Seven Elms, Inc., 628 A.2d 115, 116 (Me. 1993). Admission of evidence of recovery from a collateral source is highly prejudicial and allowed only in limited circumstances. Werner, 393 A.2d at 1336.

¶18 Punitive damages are awarded to deter a defendant's intolerable conduct and are not based on the financial or insurance status of the plaintiff. See Tuttle v. Raymond, 494 A.2d 1353, 1355 (Me. 1985) (punitive damages awarded to deter the defendant's conduct). That the Credit Unions were insured against the harm caused by Sun's fraud is irrelevant on the issue of punitive damages.

¶19 Sun's contention that the collateral source evidence shows that there is no proximate cause is just another way of saying that the Credit Unions suffered no compensable harm because they were made whole by a collateral source for losses suffered. We rejected this contention when we adopted the collateral source rule in Werner.

¶20 Moreover, the trial court did not entirely exclude the proffered evidence. It permitted the use of the redacted forms, and Sun used the redacted forms to cross examine one of the Credit Unions' witnesses. Although the entire documents may have been admissible on the substantive issue of whether the Credit Unions' reliance on the misrepresentations in the certificates in deciding to contract with Maine Armored Car was reasonable, and to demonstrate that the Credit Unions were experienced in insurance matters, Sun failed to make these purposes the basis of its argument that the evidence was admissible to the trial court. Sun never presented to the trial court the argument that the entire issue of other insurance coverage is relevant to reliance. When proffered evidence is admissible only for a limited purpose, a party must call to the court's attention the manner in which the evidence is relevant in order to preserve a claim of error arising from the exclusion. State v. Wells, 423 A.2d 221, 226 (Me. 1980); Richard H. Field & Peter L. Murray, Maine Evidence § 103.4, at 16 (2000 ed. 1999). Otherwise, the exclusion of the evidence will be reviewed for obvious error. Id. We cannot say that the trial court committed obvious error or acted outside its discretion by excluding the collateral source evidence.

II. FRAUD CLAIMS

¶21 Sun also contends that the trial court erred in its denial of its motions for judgment as a matter of law on the Credit Unions' fraud claims because there is insufficient evidence of fraud. We review the trial court's denial of a motion for a judgment as a matter of law by examining the evidence in the light most favorable to the nonmoving party to determine whether any reasonable view of the evidence, including all justifiable inferences to be drawn therefrom, could sustain the verdict. Guardianship of Hughes, 1998 ME 186, ¶ 20, 715 A.2d 919, 924. "The burden is on the moving party to show that the adverse verdict is clearly and manifestly wrong." Grover v. Minette-Mills, Inc., 638 A.2d 712, 716 (Me. 1994) (quoting Schiavi v. Goodwin, 542 A.2d 367, 368 (Me. 1988)).

¶22 A defendant is liable for fraud if the following elements are established by clear and convincing evidence:

[The defendant] (1) makes a false representation (2) of a material fact (3) with knowledge of its falsity or in reckless disregard of whether it is true or false (4) for the purpose of inducing another to act or to refrain from acting in reliance upon it, and (5) the plaintiff justifiably relies upon the representation as true and acts upon it to his damage. Letellier v. Small, 400 A.2d 371, 376 (Me. 1979).

When clear and convincing evidence is required, plaintiffs with the burden of persuasion can prevail only if they can "place in the ultimate fact finder an abiding conviction that the truth of [their] factual contentions are highly probable." Taylor v. Commissioner of Mental Health, 481 A.2d 139, 153 (Me. 1984) (quoting Colorado v. New Mexico, 467 U.S. 310, 316 (1984)).

¶23 Sun contends that all of the Credit Unions failed to prove the elements of a false misrepresentation, justified reliance, and scienter; and, that three of them, Notre Dame, Keyes Fibre, and Taconnet, failed in their proof of damages.

¶24 The text in the certificate of insurance stated that Sun had issued a policy to Maine Armored Car, "[c]overing the liability assumed by [Maine Armored Car] for loss or damage, from any cause whatsoever, to property of customers, consisting of . . . Checks, Drafts, Notes . . . and all other Commercial Papers, and other Documents and Papers of value." The certificates also listed exclusions from coverage but did not mention the exclusions pertaining to theft. The representations in the certificates were not true because the policies issued by Sun to Maine Armored Car did not cover losses "from any cause whatsoever." Rather, unless the thefts were committed in a particular manner, the policies excluded losses from thefts. The certificates, however, did not reveal the theft exclusion. Thus, viewing the evidence in the light most favorable to the Credit Unions, a jury could conclude to a high probability that the representations in the certificates stating that Maine Armored Car was fully covered for losses from any cause whatsoever except those due to the exclusions listed on the certificates were false.

¶25 We have stated that a party "may justifiably rely on the fraudulent misrepresentation of [another] . . . without investigating the truth or falsity of the representation. Reliance is unjustified only if the plaintiff knows the representation is false or its falsity is obvious to him." Sargent v. Sargent, 622 A.2d 721, 723 (Me. 1993) (quoting Estate of Whitlock, 615 A.2d 1173, 1176 (Me. 1992)); see also Ferrell v. Cox, 617 A.2d 1003, 1006 (Me. 1992) (holding that an experienced attorney who conveyed a utility easement was justified in relying on the grantee's representations that the easement would not be shared with others and that broad and unrestricted language in the deed was necessary to satisfy the utility company's requirements).

¶26 Sun presented evidence that the Credit Unions are experienced in insurance-related matters and knew that the certificates of insurance did not represent the full provisions of the insurance policy and did not claim to do so; that the certificates state that the referenced policy could be canceled without notice to the holder; and, that some of the Credit Unions may not have actually read the entire certificates. The Credit Unions, however, produced evidence to show that the certificates were issued for the purpose of causing them to believe that Sun had issued a policy of insurance to Maine Armored Car for the loss of property of its customers from any cause whatsoever. They also demonstrated that each of them individually believed that the representations in the certificates were true, that they relied upon the certificates in deciding to do business with Maine Armored Car, and that they entrusted their property to Maine Armored Car only after reviewing the certificates. Although the evidence would have supported a contrary verdict, the evidence was sufficient to support the jury's finding that the Credit Unions justifiably relied on the certificates.3

¶27 In order to succeed in an action for fraud, a plaintiff must also prove that the defendant's false misrepresentation was made with knowledge of its falsity or in reckless disregard of whether it was true or false. Letellier, 400 A.2d at 376. Sun wrote the insurance policies. The certificates of insurance were issued by Sun, via the insurance broker, Marsh & McLennan, Inc. The representations in the certificates were not mere casual comments or off-hand remarks. The representations were important and contained formalized statements of fact concerning insurance coverage complete with seals and signatures that conveyed credibility.

¶28 The certificates vary in several important respects from the policies. As the trial court reasoned, given the significance of these differences, viewed in a light most favorable to the Credit Unions, a fact finder could reasonably infer that the representations made in the certificates drafted by Sun were made in reckless disregard of their truth or falsity.

¶29 The final element of a fraud action essential to the proof of the Credit Unions' case is proof that they suffered pecuniary loss. Jourdain v. Dineen, 527 A.2d 1304, 1307 (Me. 1987). The Credit Unions did so by presenting evidence demonstrating that they have aggressively but unsuccessfully attempted to execute the judgment obtained against Maine Armored Car for the past three years.

¶30 Although the evidence could have supported a contrary verdict, viewed in the light most favorable to the Credit Unions, the jury was justified in its finding that Sun was liable for fraud and misrepresentation.

III. PUNITIVE DAMAGES

¶31 The Credit Unions appeal the trial court's entry of a judgment for Sun on the punitive damages claims. In reviewing a trial court's grant of a Rule 50(b) motion for a judgment as a matter of law, "we examine the jury's verdict to 'determine if any reasonable view of the evidence and those inferences that are justifiably drawn from that evidence supports the jury verdict.'" Maine Energy Recovery Co. v. United Steel Structures, Inc., 1999 ME 31, ¶ 6, 724 A.2d 1248, 1250 (quoting Townsend v. Chute Chem. Co., 1997 ME 46, ¶ 8, 691 A.2d 199, 202).

¶32 "[I]n order to recover punitive damages, a plaintiff must prove by clear and convincing evidence that the defendant acted with malice." Tuttle, 494 at 1354. Malice can be express or implied. Id. at 1361. Express malice exists "where the defendant's tortious conduct is motivated by ill will toward the plaintiff." Id. Malice also exists "where deliberate conduct by the defendant, although motivated by something other than ill will toward any particular party, is so outrageous that malice toward a person injured as a result of that conduct can be implied." Id. Implied malice is not established "by the defendant's mere reckless disregard of the circumstances." Id.

¶33 The actions of Sun in this case were not so outrageous that malice toward the Credit Unions can be implied. Sun overstated the extent of coverage in certificates of insurance that were standard forms, used throughout the insurance industry, and supplied to insurance brokers who filled in the names of the parties and amounts of coverage and then mailed them out. The evidence is insufficient to support a conclusion that Sun knowingly participated in a scheme to defraud armored car customers, or that Sun's conduct was intentional. At best, the evidence shows that Sun was reckless in drafting and issuing the certificates. The trial court properly granted judgment as a matter of law in favor of Sun on the punitive damages claims.

The entry is: Judgments affirmed.

1. . William H. McGee & Company, Inc., who is an underwriting firm that managed the operations of Sun also appeals from the denial of the summary judgment. This opinion refers to Sun as the sole defendant, even though there are two defendants in this case.

2. . That summary judgment is not challenged.

3. . We decline to conclude that the statements in the certificates of insurance cannot support a fraud claim as a matter of law because there can be no justified reliance on certificates that contain cautionary disclaimer language similar to the disclaimers in the certificates in this case. The statements in the certificates were false when the certificates issued and the disclaimer stated that it "set forth certain features" of the insurance policy. Holders of certificates do not have an affirmative duty to investigate statements made to them in certificates. See Letellier, 400 A.2d at 376 (plaintiff has no duty to investigate truth or falsity of a fraudulent misrepresentation).

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